How do I protect my cryptos? This is one of the most frequently asked questions from people worried about the safety of their assets. The popularity of digital coins and the need for people to keep their coins safe is growing. A Bitcoin or altcoin wallet is kind of a digital version of your regular money wallet, the big difference is that crypto wallets act simultaneously as a bank, an exchange, and as a currency. Wallets are usually encrypted with passwords for maximum security.
Storage (or a wallet) protects the secret code you need in order to use your bitcoins and altcoins and also helps you manage transactions, such as an Internet banking account. The code, which serves as a password, is called 'private key' and is vital for the safety of your money. wallets are usually encrypted with passwords for maximum security.
Anyone with access to your private key can steal your assets. If you lose your key, your cryptos will be lost. Therefore, it is important to protect the private keys against accidental loss and to back them up all the way down. Write them in a paper, as many times you like and store in safe places that only you know. Don't ever store your private keys or QR code as an image on your computer, this way if your computer is hacked you won't have delicate info stored.
By being aware of the strengths and weaknesses of the different types of wallets, you will be able to make an informed decision on what best suits you.
The Different Types Of Storage
Web wallets allow you to send, receive and store your cryptos through your web browser. They are usually hosted by a provider who manages the security of the private keys associated with your account, but some types of Web wallets provide ways to keep track of your private keys. Web wallets are generally more convenient than other wallet types since you do not have to worry about accidentally deleting a wallet from your computer (and losing your coins).
The main con for this type of wallet is that you relinquish some control since the providers usually manage private keys in your name. This means that security must be taken very seriously by the wallet provider. Like any other online account, it is also important that customers take some safety precautions and enable all the feature provided for an additional level of security (2AF). There are technologies available that allow users to keep full control of their funds and take advantage of the convenience of electronic wallets, such as Coinbase vault. Coinbase is a secure platform that makes it easy to buy, sell, and store cryptocurrency like Bitcoin, Ethereum, and more.
This type of wallet allows for installing software directly on your computer. You will have full control as well as the liability on your wallet. Here private keys are stored on a hard disk, so you can only access them using the computer where the wallet is installed. If the wallet files become corrupted and there isn't a backup, the stored coins will be lost. It is extremely important that you create strong passwords and make the proper backups of any desktop wallet. It is equally important that the wallet and any backups are kept secure.
Web Wallets can be divided into two main categories. The "full nodes" wallets that host a copy of the whole blockchain while the "light" ones only provide storage resources and need an external network to read the blockchain. The choice will depend on the capacity of the computer since having a copy of the entire bitcoin blockchain on your computer will require some storage capacity (+/- 31 GB).
Mobile wallets, as the name says, are designed for a mobile device. We can easily scan QR codes, they are extremely easy to navigate and accessible anywhere in the world and at all times. The Coinbase mobile wallet for iOS and Android allows you to access your Coinbase account to send, receive, buy and sell bitcoins/altcoins. Mobile wallets are usually "light" because they do not store a full copy of the blockchain.
Web Wallets, Desktop Wallets, and Mobile Wallets are also known as "Hot Storage" meaning the data is stored online making this method less secure when compared to "Cold Storage" where the data is stored offline.
A hardware wallet is a type of device designed solely to store cryptocurrencies. The major benefit of using this type of wallet is that they are highly secure compared to desktop or mobile wallet. They use the minimum amount of software needed to store cryptos safely maintaining your assets offline. This type of storage is commonly called "cold storage" and is often a recommended safety precaution, especially dealing with large amounts of bitcoin/altcoins. It's considered the safest way to protect your portfolio. With a dedicated USB hardware pen, you can store and/or move your online data to your offline computer. This minimizes your exposure to potential viruses or hackers. You can even use an offline computer for your offline storage. There is a wide range of dedicated USB pens on the market, such as Ledger Nano or Trezor USB brands.
Consider the offline wallet for storage, if:
- If you own and need to store a large number of coins and safety is a top priority;
- You do not have to use it or access it often;
- You want to safeguard your funds and have full independence from third parties;
- Privacy is very important to you;
Other Type of Wallets
All the wallets mentioned above are the most commonly used, however, other wallets tend to be less popular have their advantages. These are outside of the normal four categories given the unique features behind them.
Paper wallets, as the name suggests, are usually made of paper, although technically they can also be made of plastic or any other substance in which the information can be printed on a lasting basis, and such as a printed banknote, if a wallet paper is damaged or destroyed, the good stored in it will disappear forever. A paper wallet consists of a public and private key printed together. It is an offline wallet and it can be considered as a form of "cold storage".
Relevant link about How to Make a Paper Bitcoin Wallet
This type of wallet is generated from a secret phrase and stored in the memory of the coin holder. In short, it consists of memorizing a "seed phrase". If the seed is not recorded anywhere, Bitcoins can be considered as being kept only in the owner's mind. If the brain wallet key is forgotten or the person dies, the Bitcoins will be lost forever. While it may be interesting to store the bitcoins entirely within your memory, you should exercise caution because of the challenge of using a sufficiently secure password. To create a brain wallet, you can use specific software to generate a seed phrase and then memorize it. These seeds are generated by wallets such as Electrum, Armory, and Mycelium. Brain wallets are not recommended for general use because of fallible human memory. But in special situations, they can be very useful, for example, when we flee a country with only the clothes on our back.
Final Considerations Regarding Crypto Storage
Cold storage is always the safest method to store your cryptos avoiding hackers and giving your private keys to third parties. On the contrary, Hot storage is more vulnerable to hacking menaces. Although less safe hot storage methods are more convenient for the day to day use. Therefore, it is advisable to use both types of wallets: hot storage wallets to store small amounts of bitcoins for daily transactions and cold or offline storage wallets to keep secure larger sums. Either way, you can have as many wallets as you want.
Let me know your thoughts about which option is best for you in the comments below!
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This post was previously posted in my personal blog
Image source "History of Money" by Coinbundle